Domestic Investors Outpace Foreign Players: A Shift in India's Capital Markets

Domestic institutional investors (DIIs) now hold a larger stake in India’s top 500 companies than foreign institutional investors (FIIs), marking a historic shift in market ownership. DIIs reached 19.2% ownership in March 2025, surpassing FIIs at 18.8%. This change reflects robust domestic inflows, post-COVID economic recovery, and increased retail participation, reshaping India’s financial ecosystem and market stability.

In a significant milestone for the Indian financial landscape, domestic institutional investors (DIIs) now hold a larger share in India’s top 500 listed companies than foreign institutional investors (FIIs). This structural transformation in market ownership, highlighted in the latest India Strategy Report by Motilal Oswal Financial Services Ltd. (MOFSL), reflects the growing prominence of local capital in shaping the country’s equity markets.

DIIs Surpass FIIs in Ownership

As of March 2025, DIIs accounted for a record 19.2% ownership in Nifty-500 companies, surpassing FIIs, whose holdings dropped to 18.8%, their lowest in a decade. A decade ago, FIIs held more than twice the ownership of DIIs, but the ratio has now equalized at 1:1. This shift underscores a decade-long trend of robust domestic inflows, persistent FII outflows, and increasing participation by Indian retail investors.

The report attributes this shift to several factors, including investments worth $195 billion by DIIs over the last decade—nearly four times the $53 billion invested by FIIs during the same period. This trend gained momentum after FY21, fueled by India’s post-COVID economic recovery, the surge in systematic investment plan (SIP) contributions, and greater mutual fund participation.

Key Drivers of Change

Promoter holdings, which have historically been stable, fell to an all-time low of 49.5% in March 2025. This decline was largely driven by a buoyant primary market in 2024, where high valuations encouraged promoters to offload stakes. Meanwhile, retail investor holdings remained relatively flat at 12.4%, reflecting that institutional rebalancing was the primary force behind the ownership shift.

Despite market volatility caused by the 2024 general elections, rising global interest rates, and geopolitical uncertainties, Indian equity markets continued to scale new heights. DIIs played a pivotal role in maintaining market resilience, even as FIIs pulled back during uncertain periods.

Sectoral Trends: Where DIIs and FIIs Differ

The MOFSL report revealed that DIIs increased their stakes across 18 of the 24 sectors in the Nifty-500. Significant inflows were recorded in sectors such as private and public sector banks, consumer durables, technology, cement, insurance, oil & gas, and automobiles—industries viewed as long-term growth drivers. FIIs, on the other hand, reduced their holdings in most sectors, barring technology and consumer durables.

On a quarterly basis, DIIs raised their stakes in most sectors, except for non-banking financial companies (NBFCs) involved in lending, logistics, media, and certain consumer segments. FIIs also showed selective sectoral increases, including telecom, chemicals, insurance, and media, but continued to pare down stakes in the majority of industries.

Shifting Dynamics in Ownership Ratios

The FII-DII ownership ratio within the Nifty-500 has steadily contracted. As of March 2025, FIIs owned 37.3% of the free float, a 190 basis points (bp) decline year-over-year (YoY), while DII ownership rose by 220 bp to reach 38%. FIIs reduced their holdings in 48% of Nifty-500 companies over the past year, while DIIs increased stakes in 67%.

This pattern was even more pronounced in the Nifty-50 index, where FIIs cut their holdings in 82% of companies, while DIIs raised stakes in 84%.

Institutional Holding Patterns Across Market Caps

An analysis of market capitalization categories offers further insights into changing ownership dynamics:

- Large-Cap Stocks: DII holdings climbed to an all-time high of 20.4%, while FII holdings fell to 21.1%, near their lowest levels. Promoter and retail holdings also declined to 47.6% and 10.8%, respectively.

- Mid-Cap Stocks: DIIs boosted their stakes to 17.1%, while FIIs held steady at 14.7%. Promoter holdings dropped to 54.9%.

- Small-Cap Stocks: DIIs increased their stakes to 15.2%, while FIIs marginally raised their holdings to 12.2%. Promoter holdings, however, dipped to 51.4%, and retail participation remained robust at 21.2%.

This realignment reflects growing confidence in domestic institutions, which have steadily increased their influence across market segments.

A New Era for Indian Capital Markets

The rise of domestic institutional investors as dominant players in India’s equity markets marks a turning point in the country’s financial ecosystem. With increasing retail participation, robust mutual fund inflows, and a maturing domestic investment landscape, local capital is now a key driver of market stability and growth. As DIIs continue to expand their holdings across sectors and market caps, their role in shaping India’s equity markets is set to grow even further.

This transformation not only highlights the resilience of Indian markets but also underscores the importance of fostering domestic financial ecosystems to maintain long-term economic growth.